Mid-session Europe: Forex like a candle in the wind

Today saw the USDCAD recovery continue after the tremendous CAD rally on the back of a recovery in crude prices from January lasted into late April. Higher oil prices are seen as having less potential to drive economic growth in Canada unless prices accelerate considerably from here.

For today's Canadian data releases and on why John J Hardy is long in USDCAD read his SaxoStrat. USD also gained remarkable against JPY.

Watchlist

Canada March Retail Sales (m/m -0.6% exp.) (1230)

Canada April CPI (0.3% exp.m/m; 1.7% y/y) (1230)

US April Existing Home Sales (5.4m exp.) (1400)

Speakers

FED’s Tarullo to speak (1300)

Forex developments

EURUSD: This currency pair has been contained mostly between two levels we have been looking at lately - the tech resistance at 1.1220 (50% from the rally that started early Feb 2016, which also is lows from 22nd and 25th April) and 1.1200. More notably the 1.1230 has been the ceiling that EURUSD has found difficult to break as has been the level that has been rejected twice yesterday. Above 1.1230 next level is 1.1292 area (55 day moving average).

USDJPY: The rally is looking more solid, especially if we close above 110.35 (55 day moving average that has been a challenge to close above since 2 Feb) then the 111 area . Downside tech supports starting to look more decent around the 109.80 area which corresponds to the highs of 20/21 April as well as an area USDJPY has been hovering around for the last two days. We keep an eye on pot G7 meeting in Japan as potential for USDJPY to break higher.

FX Options volatilities

Vols

Vols trading a bit lower across the board today, with risk-on sentiment in stock market as well. We did see EURUSD well bid yesterday after the publication of the FOMC minutes, but spot has not done any further reaction today.

For options traders US data are more important to encounter, as these are closely correlated to a potential Fed rate hike in June. EURCHF spot has reached a 3month high now, but vols remain on the lows, with 1w ard 4.25 vol. Perhaps worth getting some long gamma on there?

Fixed income

Sentiment recovers from yesterday’s interest rate risk shock and core yields across developed markets have taken a small step back. Even though levels seem elevated when compared with just a week ago, all key metrics remain significantly lower on a year-to-date basis, when 10-year yields in the US and Germany stood at 2,27% and 0,63% respectively.

Corporate bond spreads are largely unchanged for the year, but closer to the lower range of what has been a quite volatile journey so far this year. The ITRAXX XOVER is currently at its widest level in two months at 335 bps, but far from the 490 bps high in October and closer to the 290 bps low last month.

Commodities

Equities

European stocks rose on Friday as fears of an imminent Federal Reserve rate increase abated and as a slight rebound in oil prices helped to lift the investing mood. Germany’s Dax 30 gained 1.1% to 9,905.45, and France’s CAC 40 rose 1.5% to 4,345.50. Italy’s FTSE MIB was up 1.7% to 17,852.20, while Spain’s IBEX 35 added 1.3% to 8,783.70.

For the movers today, Financière Richemont SA shares fell 2.3% after the Cartier parent reported a rise in full-year profit, but said conditions look gloomy for the luxury market in the coming months. Swatch Group Ltd. also fell 1% but shares of other luxury makers held to higher ground, with Christian Dior SE rising 0.8%.

Fiat Chrysler Automobiles NV fell 1.4%. The car maker rejected an invitation to meet with German transport ministry officials to discuss diesel emissions, the ministry said Thursday. Unicredit SpA climbed 5.1% after reports the Italian lender is considering selling some assets. Energy shares on Friday gained as oil prices continued to rebound from a one-week low. Energy producer Tullow Oil PLC moved up 4.6%, and SBM Offshore NV picked up 1.5%.

Wall Street was set for a positive trading day on Friday. Tesla Motors Inc. climbed 2.7% premarket trading. The electric-car maker said it has raised $1.46 billion in fresh capital after the sale of 6.8 million in new common stock, according to media reports. Yahoo Inc. gave up 3.4% ahead of the bell after a report that potential suitors for the tech company are likely to bid less than expected.

Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.

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